Friday, June 26, 2009

Media Continue to Accentuate the Positive

Bloomberg has some good news in a headline today, Consumer Spending Rises, Stimulus Lifts Incomes. What the headline does not say is that the rising incomes were entirely due to government transfer payments or tax cuts. Buried deep in the article is the fact that "wages and salaries dropped 0.1% in May". Worse, private wage and salary disbursements dropped $12.4 B in May, having "only" dropped $0.7 B in April.

Germany’s powerful export industry is warning of a credit squeeze in Europe’s largest economy even after the European Central Bank’s injection this week of one-year liquidity into the eurozone banking system.

The German BGA exporters’ association on Thursday forecast a “dramatic deterioration” in credit conditions in coming months, which would result in “massive financing squeeze”.

Anton Börner, BGA president, told the Financial Times that “for middle- and long-term credit we already have significant difficulties”. Even for short-term credit, he expected banks to “exert massive pressure on borrowers”.

Mr Börner blamed the squeeze on the delayed impact of the hit Europe’s banks had taken from “toxic” assets as a result of the global economic crisis.

The article continues:

The alarmed tone is significant because German policymakers have argued that the export-dependent country is not facing problems in the supply of credit to business or households. Instead, the economy is seen as being hit by a global collapse in demand for its industrial products.

Earlier this month the Bundesbank warned gross domestic product would contract by 6.2 per cent this year, but it “assumed that the situation on the financial markets will gradually ease and that Germany will not experience a general credit crunch”.

Late on Wednesday, the VDA German automotive industry association also warned its members were facing increasing difficulties obtaining credit.

The severity of continental Europe’s recession was underlined on Thursday by a 35.5 per cent fall in eurozone industrial orders in April compared with the same month a year before, reported by Eurostat, the European Union’s statistical office. That was the steepest such fall since records began in 1996. Germany reported a 39.5 per cent drop.

In both the spring of 1930 and the spring of 1931, green shoots appeared. Then, markets collapsed. In the severe 2 year bear market of 1973-4, markets collapsed and the economy sank unexpectedly after things were looking better after the spring.

Looking at all the accentuating of the positive and then the actual real world employment facts, and severe problems elsewhere in the world, it would appear that investors need to steel themselves to resist the selling machine that Wall Street is.